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The liasonsing and implementation support activities undertake taken by the IMC India branch. It is also important to note that how this functions were performed it was stated in the transfer pricing study report of the appellant that IMO UK employees came to India from time to time for short-term visits. Further few freelancers were appointed/engaged by IMO UK for undertaking the on- ground implementation and related supervision activities in India. As these functions performed, assessee has claimed that it has created a service PE in India and therefore the income should be chargeable to tax according to the article 7 of the Double Taxation Avoidance Agreement. Therefore according to us the above agreements and memorandum of understanding has two limb one. with respect to the performance of the activities performed by the permanent establishment in India and another limb deals with respect to the performance of the services by the IMG UK directly for which the India PE has nothing to do. Admittedly the issue is concerned with respect to the fees for technical services. It is also admitted position that while the effective connection of royalties with a permanent establishment has to be evaluated by applying the 'assets test' , and for the purpose of fees for technical services the 'activity test? or 'functional test' should be applied as held in case of Nippon Kaiji Kyokoi V ITO 47 SOT 41 (Mum). Therefore to "effectively connect' the whole income with the PE, contending party i.e. assessee, should establish that PE is engaged in the performance of all those services or should be involved in actual rendering of such services, or (2) it shou1d arise as a result of the activities of the PE, or (3) The PE should, at least, facilitate, assist or aid in performance of such service irrespective of the other activities PE performs. Therefore according to article 7, for attribution of the profits to the permanent establishment the activity carried out by the permanent establishment is important and to that extent only the profits can be attributed to that particular permanent establishment. However if there are other activities, which are also incorporated in the agreement, which are not at all carried on with the help of, or through, or by, or under the control, or under the supervision of the permanent establishment such activities and income arising there from cannot be said to be 'effectively connected' with the permanent establishment and article 7 cannot be applied to those services. In the present case certain activities are carried out by the appellant which are not even concerned with the functioning . of the permanent establishment therefore in our view only the activities which are performed by the permanent establishment are effectively connected with the permanent establishment and activities which are not carried on by the permanent establishment but are carried out by the head office of the appellant are not 'effectively connected' with the permanent establishment. We are also of the view that the term 'effectively connected' should not be understood to mean the opposite of 'legally connected' but rather something in the sense of 'really connected'. Therefore the activities mentioned in the contract should be connected to the permanent establishment not only in the form but also in substance. It is also interesting to note that the permanent establishment of the assessee has been admitted by the appellant only because of the reason that some of the employees of the appellant came to India from time to time for short visit and further certain freelancers were appointed for undertaking the own ground implementation related supervision activities in India. Therefore according to us there are minimum activities performed by the PE of appellant in India. Hence just performing such minimum activities it cannot be said that whole of the revenue of Rs. 33 crores involved in the contract is 'effectively connected' with the activities of the permanent establishment in India. Hence we reject the contention of the assessee that the whole of the revenue involved in the contract should be considered as effectively connected with the permanent establishment of the appellant. We also give one more reason may be a hypothetical one which supports our view. Supposedly a contract of Rs. 100 crore is awarded to an overseas entity for rendering of the management services and if such:

(vii) of the Income Tax Act as Fees for technical services.‖

22. On an overall consideration of the above, the Tribunal proceeded to dismiss the appeal of IMG and allow the appeal of the Department holding that INR 23,77,50,181/- would be governed by Article 13 of the DTAA and liable to be taxed as FTS on a substantive basis.

B. IMG‟S CHALLENGE

23. Appearing in support of the appeals, Mr. Vohra, learned senior counsel canvassed the following submissions for our consideration. Mr. Vohra submitted that a cumulative reading of the terms and conditions of the MoU as well as the Services Agreement would lead one to the irresistible conclusion that the receipts of IMG were liable to be viewed as business profits, and consequently entitled to be taxed only to the extent of income attributable to the Indian PE of IMG. Mr. Vohra submitted that it was the undisputed position that pursuant to the nature of services performed in India coupled with the visits of IMG employees to the country, the prescriptions of Article 5(2)(k) of the DTAA stood satisfied and that consequently a Service PE had come into existence. Mr. Vohra underlined the fact that Article 5(2)(k) applies only where services other than those taxable under Article 13 are furnished. It was in the aforesaid backdrop that learned senior counsel submitted that once the revenue had accepted the existence of a Service PE and the taxability of INR 9,22,49,819/- being income attributable to the Service PE, it was clearly not open for the respondents to hold that the balance receipts from BCCI were liable to be taxed as FTS.

32. It was then submitted by learned senior counsel in the alternative that even if one were to assume that the services rendered by IMG answer the description of FTS, the payments received by it would fall for consideration only under Article 7 of the DTAA since the same was indelibly connected to the contract that IMG had with BCCI, and which was concerned with the rendition of services and fees so received in consideration thereof being effectively connected with the Service PE of the appellant. According to Mr. Vohra, Article 13(6) requires one to examine whether the contract is ‗effectively connected' to the PE and if the answer to the above be in the affirmative, the receipts being liable to be taxed only to the extent as envisaged under Article 7 of the DTAA. According to learned senior counsel, since IMG admittedly had a Service PE and the source of revenue was only one contract, it must consequently be held that the same was effectively connected with the PE. Accordingly, and in view of the above, it was his submission that the entire receipt from BCCI would go out of the ambit of Article 13 and become taxable as income under Article 7 to the extent attributable to the PE.

71. We are thus of the firm opinion that merely because a part of the revenue earned by IMG was attributable to functions performed by the Service PE which came into existence by virtue of Article 5(2)(k), the respondents were clearly not estopped in law from examining whether revenue other than that attributable to the Service PE could be subjected to tax under the separate and individual Articles of the DTAA. All that Article 5(2)(k) regulated was whether a Service PE could be said to have been in existence in the relevant assessment year. The characterization of income, the extent to which it was attributable to the PE and the Article under which it was liable to be taxed were issues which were clearly open for examination. In our considered view, merely because IMG chose to treat the same as Business Profits, the respondents were neither estopped nor restrained from examining the issue independently and uninfluenced by the action of IMG offering a part of the revenue to tax albeit under the head of Business Income.